SOVEREIGN CREDIT RISK FROM RUPEE IS LIMITED, SAYS FITCH

NEWDELHI:THE sharp fall in the Indian rupee is likely to have limited impact on the country’s sovereign ratings, Fitch Ratings said on Monday.

The fallout is limited courtesy India’s strong external finances, especially the low levels of external debt, the rating agency said in a note. However, in a note of caution, Fitch said the currency depreciation could add to existing pressures in the corporate and banking sector.

The Indian rupee has been one of the worst performers among Asian currencies this year. The rupee has depreciated by around 9% from the beginning of the year and crossed the psychological level of 70 to a dollar earlier this month.

Fitch said the rupee is among emerging market currencies affected by pressures from the global monetary tightening and, more recently, contagion from the Turkey crisis.

The widening of the trade deficit in July 2018 to its largest gap since May 2013 and net portfolio outflows through mid-august totalling $5.5 billion for the year, mostly in bonds, compared with inflows of $27.9 billion over the same period in 2017 have also added to the pressure on the rupee, it said.“foreign direct investment inflows have also weakened and no longer cover the current account deficit - in other words, India’s basic balance has turned negative,” Fitch said.